Method, apparatus and program for customizing credit accounts

ABSTRACT

An apparatus, method, and program for customizing credit accounts and calculating an appropriate price for this customization. Customers with existing credit accounts and parameters of their accounts, in exchange for a fee to be collected by the credit issuser. The fee may depend on the particular set of parameters selected by the customer.

This application is a continuation of Ser. No. 08/815,224 filed Mar. 12,1997 now U.S. Pat. No. 5,970,478.

BACKGROUND OF THE INVENTION

The present invention relates generally to the field of credit accounts.More specifically, it relates to a method, apparatus, and program formodifying the terms of existing credit accounts and customizing theterms of new credit accounts to meet specific customer needs.

Credit accounts are widely used throughout the world for non-cashpayments for goods and services. Typically, the authorized user of theaccount is issued a card and account number that can be used to chargepurchases to his account. The credit card issuer (e.g., a bank) pays themerchant, and the card holder then pays the card issuer. The issuer'srevenues are received by charging the merchant a fee for eachtransaction, and charging the card holder periodic fees and interest onunpaid balances.

From the card issuer's perspective, issuing credit cards can be a veryprofitable business. A good customer can generate hundreds of dollars ofrevenue per year. As a result, card issuers want to keep as many oftheir customers as they can. This is especially true for their bestcustomers. Card issuers also want to attract new customers, in the hopesof generating additional revenue.

Credit card issuers have traditionally tried to attract new customers byadvertising in banks and places of business, and by sending offers topotential customers by mail. The terms (or parameters) of these offersvary. For example, various credit card accounts offer differentcombinations of interest rates, credit limits, and annual fees. Many ofthese offers promise the customer a low introductory interest rate for arelatively short period of time, such as six months. Other offerspromise rewards for card usage such as rebates on products (e.g.,GENERAL MOTORS), cash rebates (e.g., DISCOVER), or frequent flyer miles(e.g., AMERICAN AIRLINES/CITIBANK). Until now, credit card issuers havetypically relied on this relatively limited range of productdifferentiation in combination with traditional advertising todistinguish their accounts from competitor's offerings. To the best ofour knowledge, credit card issuers have never tried to attract newcustomers by offering customizable accounts, in which the customer isfree to choose the terms of the account, as a means to distinguish theirproduct from the competition.

Perhaps more importantly, credit card issuers have never offeredcustomizable accounts to retain existing customers that are about toswitch to a competitor's card. In fact, until now, no effective way hasbeen devised for a credit card issuer to retain an existing customer whois about to switch to a competitor's card.

The existing mechanisms for retaining customers are very limited. Incertain cases, banks have been known to waive an annual fee at therequest of a card holder, or even reduce the interest rate of anaccount. But these cases are relatively rare, and there are no automatedmechanisms known to us for determining when and how to make anadjustment to the account terms in order to retain a customer.

In addition to the problems faced by the credit card issuers, customers(i.e., the card holders) face a separate set of problems. Customers withgood credit histories often receive numerous offerings to sign up fornew credit cards. But while customers are free to seek out an accountwith terms that they desire, customers have always been faced with ayes/no decision for each account—there is no way to specify the exactparameters desired. The customers' freedom to change the terms ofexisting accounts is even more severely limited, as described above. Infact, under the existing system, it is impossible for certain customersto obtain all of the account terms that they desire.

While a customer can obtain new terms by switching to a new account,this can cause inconvenience in a number of ways. First, the customer isinconvenienced by applying for the new account and closing the oldaccount. Second, the customer is inconvenienced because he must switchany automatic payments that he has authorized (e.g., payment of hisutility bill) to the new account. Third, if the card holder neglects toswitch an automatic payment, he may be inconvenienced or embarrassed byinterrupted service or delivery of an item that he expects to receive.Further, because the terms of the new account are predetermined, thecustomer may not be happy even after he has switched to a new account.The new account may not have the type of credit terms that he wants.

For customers with bad credit, the situation is even worse. Whilecustomers with good credit histories are able to switch to new accounts,customers with poor credit histories may be unable to qualify for thestandard terms of any credit card issuer. As a result, the customer isunable to open a new account, and is forced to continue with the termsof his existing accounts. Worse yet, customers with weak financialcredentials may be unable to qualify for any credit card. This can havesignificant drawbacks when trying to obtain goods or services typicallyavailable only with the use of a credit card, such as renting a car. Nothaving a credit card can also preclude many forms of commerce now widelypracticed, such as ordering merchandise by telephone. Indeed, thedesirability of having credit cards will only increase with the growthof commerce over the Internet, a medium in which physical exchanges ofcurrency are not possible.

SUMMARY OF THE INVENTION

One aspect of the invention is a data processing apparatus for pricing acredit account having at least one customer-specified credit parameter.This apparatus includes a CPU and a memory containing a program, to beexecuted by the CPU, for receiving the credit parameters and calculatinga price for a corresponding credit account.

Another aspect of the invention is a method of pricing a credit accounthaving at least one specified credit parameter. The method includes thesteps of receiving the credit parameters, calculating a price for acorresponding credit account, and outputting the price.

Other aspects of the invention include a computer program and anapparatus corresponding to the method described above, and an embodimentusing a central controller and a number of agent terminals. Additionalaspects of the invention are directed to the central controller and theagent terminal individually.

The invention provides numerous advantages to both credit card issuersand credit card holders, by providing a method, apparatus, and programfor customizing the terms of credit accounts, for both new and existingcustomers.

The invention benefits credit card issuers because it enables them toattract new customers by offering customized credit card accounts thatmeet the customer's needs. It may even be used to attract new customersthat might not be able to qualify for credit cards with more traditionalterms. For example, a card issuer may be willing to issue a credit cardwith a low credit limit and a high annual fee to people with poor credithistories.

The invention also benefits credit card issuers by enabling them toretain existing customers and reduce account attrition. If a customercalls to cancel his account, the card issuer may be able to rewrite theterms of the customer's existing account and thereby entice him to stay.

The invention also benefits credit card issuers by providing them withan opportunity to charge a fee for changing the terms of a customer'saccount.

By enabling the card issuers to attract new customers and retainexisting customers, the invention can provide the card issuer with moreopportunities to make a profit. This is particularly important when theinvention is used to retain customers that generate large profits forthe card issuer.

The invention benefits credit card holders by enabling them to find acard with credit terms that they desire, and to modify those terms astheir needs change. For example, the invention can be used by a cardholder who is worried about rising interest rates to lock in a fixedinterest rate for a given period of time.

The invention also benefits credit card holders by eliminating theproblems, described above, of switching to a new card to obtain creditterms that they need.

Further advantages and features of the invention will be apparent tothose skilled in the art upon an examination of the following detaileddescription of preferred embodiments taken in conjunction with theaccompanying drawings.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 is an overall system block diagram of a preferred embodiment ofthe present invention.

FIG. 2 is a block diagram of the central controller of FIG.

FIG. 3 is a block diagram of the agent terminal of FIG. 1.

FIG. 4 is a table depicting a preferred set of fields for the parameterdatabase of FIG. 2.

FIG. 5 is a table depicting a preferred set of fields for the customerdatabase of FIG. 2.

FIG. 6 is a flow chart depicting initiation of account customization inthe agent terminal.

FIG. 7 is a flow chart depicting the operation of the centralcontroller.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS

FIG. 1 depicts the flow of information for customizing a pre-existingcredit card account in accordance with the present invention. In thisembodiment, a bank central controller 20 is linked to at least one bankagent terminal 30. Although a single agent terminal is depicted in FIG.1, any number of agent terminals can be used. The link between eachagent terminal 30 and the central controller need not be a physicallink—each can, for example, be linked via modem, as described below, orany other appropriate communications channel. A transaction can beinitiated from any one of the agent terminals 30. The informationrequired to implement the transaction is passed between the agentterminal 30 and the central controller 20, until the transaction iscomplete.

The system depicted in FIG. 1 may be embodied in hardware specificallyprovided to implement the present invention. Alternatively, the systemmay be implemented using hardware and infrastructure that may alreadyexist to link terminals in banks (or other locations) to a centralcontroller being used for other purposes. Existing central controllersmay be modified to incorporate the present invention in various ways,such as by adding an additional file server (with or without a CPUdedicated to credit card customizing transactions). Alternatively, thepresent invention may be implemented using existing hardware entirely,by making appropriate software updates at an existing central controllerand existing agent terminals,in accordance with the present invention astaught below.

Alternatively, although not so depicted in FIGS. 2 and 3, a stand-alonesystem can be implemented in a single location by combining thefunctions of the agent terminal and the central controller, andeliminating the communication links and redundant hardware.

FIG. 2 is a block diagram of a preferred central controller 20. Thecentral controller includes a CPU 21 that performs the processingfunctions of the controller. It also includes a read only memory 22(ROM) and a random access memory 23 (RAM). The ROM 22 is used to storeat least some of the program instructions that are to be executed by theCPU 21, such as portions of the operating system or BIOS, and the RAM.23 is used for temporary storage of data. A clock circuit 24 provides aclock signal, which is required by the CPU 21. The use of a CPU inconjunction with ROM, RAM, and a clock circuit is well known to thoseskilled in the art of CPU-based electronic circuit design.

The central controller 20 also includes a communication port 25 whichenables the CPU 21 to communicate with devices external to the centralcontroller 20. In particular, the communication port 25 facilitatescommunication between the modem 26 and the CPU 21, so that informationarriving from the modem 26 can be processed by the CPU 21, and the CPU21 can send information to remote locations via the modem 26.

While the illustrated embodiment uses a modem 26 to communicate withdevices outside the central controller 20, it should be understood thatother methods of communicating with external devices may be used insteadof a modem. These other methods include hard-wired connections, radiocommunications, optical communications, and the like.

CPU 21 can also store information to, and read information from, a datastorage device 27. This data storage device 27 includes a parameterdatabase 27 a and a customer database 27 b, which are described below.In addition, it includes a program 27 c, which can be read and executedby the CPU 21, thereby controlling the operation of the centralcontroller 20. While FIG. 2 depicts separate parameter and customerdatabases, a single database that incorporates both of those sets ofdata can also be used.

FIG. 3 is a block diagram of a preferred agent terminal 30, which can belocated at a bank branch or office, by way of example. As discussedabove, there can be any number of agent terminals 30 linked up to onecentral controller 20. Like the central controller 20 described above,the agent terminal 30 includes a CPU 31, ROM 32, RAM 33, and a clockcircuit 34. The agent terminal 30 also includes a communication port 35which interfaces with a modem 36 that facilitates communication betweenthe agent terminal 30 and the central controller 20. Of course, insteadof the modem 36 depicted in FIG. 3, methods of communication can beused, as described above for the central controller 20. A standardcomputer, such as an IBM-compatible PC or an Apple Macintosh, runningappropriate software, may be used as the agent terminal. Existingterminals, currently being used for other functions in banks, may alsobe used.

The agent terminal 30 also includes an input device in the form of akeyboard 40 and a mouse 41, connected to receive input from an operator.Any of a wide variety of alternative input devices would also besuitable for this purpose (including, for example, touchscreens,digitizing tablets, trackballs, and the like). The input device mayinterface directly with the CPU 31, as shown in FIG. 3. Alternatively,an appropriate interface circuit may be placed between the CPU 31 andthe input device.

The agent terminal 30 also includes a video monitor 39 for conveyinginformation to the operator. While the preferred video monitor 39 is aCRT, other video display devices, including LCD, LED, and thin filmtransistor panels, may be used as well. Individual indicators may alsobe used to convey information to the operator, including incandescentand neon lamps, LEDs, and the like. A video driver 38 interfaces the CPU31 to the video monitor 39 (or to any other type of video displaydevice).

The agent terminal 30 also includes a data storage device 37, in which aprogram 37 c is stored. This program includes instructions that can beread by and executed by the CPU 31, thereby controlling the operation ofthe agent terminal 30.

FIG. 6 depicts the initiation of a transaction at an agent terminal. Thesteps of the process of FIG. 6 are performed at an agent terminal 30(which, along with other hardware described below, is depicted in FIG.3). These steps may be implemented in a computer program that may beinstalled at the agent terminal 30 from, for example, a computerreadable medium (such as a floppy disk or CD-ROM) and then stored in thedata storage device 37 (such as a hard disk drive). After beinginstalled, the program 37 c can run from the data storage device 37.Alternatively, the program 37 c can run directly from the computerreadable medium. As yet another alternative, not shown in the figures,the computer program may be installed at the central controller 20 froma computer readable medium and then stored therein in one or more of ROMmemory 22, RAM memory 23 and the data storage device 27, for access anduse by the agent terminals as required.

The process starts when a customer contacts a bank agent in step S1. Thecustomer provides customer information in step S2. Preferably, thiscustomer information includes an account identifier that uniquelyspecifies a particular credit card account. The customer selects the newcredit card parameters that he wants to have in step S3. Theseparameters include, for example, the interest rate, credit limit andmonthly minimum payment. This information is entered by the bank agentinto the agent terminal 30 in step S4. The credit card parameters andthe customer information are then transmitted to the central controller20 in step S5. Alternatively, the information can be entered by thecustomer directly into a suitable terminal. Each of the steps S1-S5described above is executed by the CPU 31, which executes a program 37 cstored in the data storage device 37. The communication with the centralcontroller 20 takes place via the communication port 35 and the modem36.

FIG. 4 depicts a preferred set of parameters pertaining to each creditaccount. These parameters are stored in the parameter database 27 a.When the customer selects the parameters in step S3 of FIG. 6, heselects from the available parameters. The preferred parameters include:the interest rate that is charged on unpaid balances; the time period ofthe interest rate, which is the amount of time for which the interestrate must remain fixed; the monthly minimum payment, which willtypically be a percentage of the outstanding balance; the credit limit,which is the maximum amount of credit that the issuer will extend to thecard holder; the grace period, which is a period following a purchaseduring which interest does not accrue; payment amnesty, which recordsthe number of times a customer is permitted to skip a monthly paymentwhich is inconvenient to pay; and a late fee, which is a fee that ischarged when a customer do not pay his bill on time.

Parameter database 27 a is preferably indexed by the account identifier,linking parameter database 27 a with customer database 27 b. Of course,the invention is not limited to the parameters described above, andalternative parameters may be used.

FIG. 7. is a flowchart of the operation of the central controller 20(which, along with other hardware described below, is depicted in FIG.2). The steps of the process shown in FIG. 7 may be implemented in acomputer program 27 c that may be installed at the central controller 20from a computer readable medium and then stored therein in the datastorage device 27. Alternatively, the program 27 c may be installed inthe ROM 22 or the RAM 23.

First, in step S11, the central controller 20 receives the credit cardparameters and customer parameters that were transmitted from the agentterminal 30. The central controller 20 retrieves the customer parameterscorresponding to the received customer information (which is preferablyan account identifier) in step S12. These retrieved customer parametersare preferably stored in the customer database 27 b.

A preferred set of customer parameters for existing customers isdepicted in FIG. 5. These parameters are stored in customer database 27b. This set includes each customer's name and address; an accountidentifier (such as a credit card number); social security number (whichis commonly used to identify individuals on their credit historyrecords); the account balance (indicating the amount of money that thecustomer owes to the card issuer); and a customer rating. The customerrating rates the credit of the customer. This could be based on acustomer's past payment history for the account in question.Alternatively, it could be based on information obtained from a creditreporting agency such as TRW or EQUIFAX. The credit rating could also bebased on other factors such as the customer's income. A three-levelcustomer rating of good, average, and bad may be established based onany of the above-mentioned factors, and then stored in the customerdatabase 27 b. Of course, the invention is not limited to the parametersdescribed above, and alternative parameters may be used.

Returning now to FIG. 7, the central controller 20 then calculates theprice of modifying the account in step S13 based on the credit cardparameters received from the agent terminal along with the customerparameters from the customer database 27 b. For example, a customerrequesting a lower interest rate and lower minimum payments might becharged a fee of twenty dollars.

One example of calculating a price based on some of these parameters,and the effects of each of those parameters on the price, is describedbelow.

(1) The interest rate: Decreasing the interest rate on the card willresult in less revenue for the card issuer, so the customer will have topay a premium for lowering the interest rate. A base price due to thechange in interest rate can be computed by multiplying the decrease ininterest rate by the expected average monthly balance for the customerby the expected life of the customer.

For example, a customer who wants to lower his interest rate by 2%, andwho carries an average balance of $500, and who has an expected customerlife of 3 years, will result in the following base:

Base=2%×$500×3=$30

(2) The time period of the interest rate: Interest rates which are fixedover a long period of time will result in greater exposure to adversechanges in market rates, therefore the price for changing parameterswill increase as the length of the fixed period of coverage increases.The following multipliers for example may be used:

6 months 110% 1 yr 120% 2 yr 130%

(3) The monthly minimum payments: Smaller minimum payments will tend toincrease the risk of default, which will raise the price. The followingmultipliers for example may be used:

Payments lower by 30% 120% Payments stays the same 100% Paymentsincrease by 30%  80%

(4) The credit limit: Higher credit limits will tend to increase therisk of default, which will raise the price. The following multipliersfor example may be used:

Decrease limit by 50%  60% Decrease limit by 25%  80% Limit stays thesame 100% Increase limit by 25% 130% Increase limit by 50% 160%

(5) The grace period: Since the card issuer does not collect interestduring the grace period, extending it will require an increase in theprice. The following multipliers for example may be used:

Stays the same 100% Extend by 2 weeks 115% Extend by 1 month 125% Extendby 2 months 140%

A sample calculation, using these parameters, will now be described fora hypothetical customer who wants to change the parameters of anexisting account. This customer wants to lower the interest rate by 2%,lock the rate in for 1 year, increase his monthly payment by 30%,decrease his credit limit by 25%, and extend his grace period by 1month.

Base=2%×$500×3=$30 (as calculated above)

Adjustment=120%×80%×80%×125%=96%

Price=Base×Adjustment=$30×96%=$28.80

Where no adjustment to the interest rate is requested, the base cost ofthe change will take a different form; for example a fixed-priceprocessing fee, or a predetermined percentage of the average monthlypayment or average monthly balance.

While the calculation described above uses a simple product of variousparameters, numerous other formulae may be used to arrive at a suitableprice.

The price calculated based on the credit parameters may also be modifiedby customer parameters, such as the customer rating from the customerdatabase (shown in FIG. 5). For example, the price may be tripled forcustomers with a bad credit rating, doubled for customers with anaverage credit rating, and left unchanged for customers with a goodcredit rating.

Once the price information has been calculated, it is transmitted to thecustomer in step S14.

In some instances, the price of modifying the account may be zero. Forexample, if a customer wants to increase his minimum monthly payments by30%, the credit card company may modify his account for free. A cardissuer may even be willing to pay a customer to change the terms of hisaccount when the new terms are more profitable for the issuer. Thus, thephrase “calculating the price”, or equivalent phraseology used herein todescribe an exchange of value for a change in credit terms, contemplatesnot only the computation of a price to be paid by the customer, but alsocircumstances in which the price or fee may be zero, or even where thecredit issuer may provide a payment or credit to the customer foraccepting new terms more favorable to the credit issuer.

After the price information is transmitted to the customer in step S14,the customer decides whether the price is acceptable in step S15. If heaccepts the price for modifying his account, the system can process thesale by charging the customer's credit card, in step S16. This chargingcan be initiated by the central controller 20, (or by the agent terminal30) using traditional credit card transaction procedures, such as thosecommonly used in retail stores. Transactions processed through the agentterminal 30 may be carried out using the same modem 36 that is used tocommunicate with the central controller 20. Alternatively, an additionalmodem (not shown) may be included in the agent terminal 30 to processthe credit card transactions.

Of course, alternate methods of payment may be used instead of paymentby credit card, including payment by cash, check, debit card, and thelike. Alternatively, the bank may bill the customer for the price ofmodifying his account.

Finally, the customer database 27 b is modified to reflect the newaccount parameters in step S17. If the customer decides that the accountprice is not acceptable during step S15, the customer is given a chanceto revise the initially selected credit card parameters in step S18. Bytrading off the various parameters against each other, the customer maybe able to find terms that are suitable. After the customer revises thecredit card parameters, the new credit card parameters are processed bythe system in the same way as the original credit card parameters togenerate a new price.

The processes depicted in FIGS. 6 and 7 are described above in thecontext of customizing existing accounts. In this situation, thepre-existing parameters of the existing account may be used in thecomputation of the price for setting up an account having the new set ofparameters.

A similar process may be performed, with appropriate modifications, whena new account is being opened. In particular, in FIG. 6, because thereis no pre-existing account, a credit card number can not be used as thecustomer identifier. Accordingly, a customer identifier such as a socialsecurity number, a name and address, or the like may be substituted forthe credit card number. Similarly, in FIG. 7, instead of retrievingcustomer parameters corresponding to the credit card number, the centralcontroller may retrieve credit history information from a credit bureau(such as TRW or EQUIFAX) using the customer identifier. Finally, becausethere are no pre-existing credit parameters, the price for opening a newaccount can not be based on those parameters. Accordingly, a set ofstandard parameters, which the card issuer would otherwise use for astandard account with no fees, may serve as the existing parameters.

There has thus been provided a method, apparatus, and program thatenables banks to offer credit card accounts with terms that can bemodified to meet each customer's needs. The invention will enable cardissuers to distinguish their services and products from those of theircompetitors. The invention accommodates these ends in a manner thatmaintains the profitability of the account for the bank, while meetingthe changing financial needs of the customer.

In practice, the present invention will not just create a more valuableproduct for the customer. It will also enable the bank to maintaincustomers who might otherwise be tempted to leave for other credit cardprograms, and to attract customers who might otherwise establish anaccount with another bank.

While the present invention has been described above in terms ofspecific embodiments, it is to be understood that the invention is notlimited to the disclosed embodiments. On the contrary, the presentinvention is intended to cover various modifications and equivalentstructures included within the spirit and scope of the appended claims.

We claim:
 1. A method for negotiating parameters of a credit account,the method comprising: receiving a request for a desired credit account,the request including at least a first requested account parameter;comparing the at least first requested account parameter with a set ofavailable parameters to calculate a price for a proposed credit accountresponsive to the request; and submitting a proposal to a customer, theproposal including the price for the proposed credit account.
 2. Themethod of claim 1, further comprising: receiving a customer acceptanceof the proposal.
 3. The method of claim 1, further comprising: receivinga customer denial of the proposal.
 4. The method of claim 1, wherein therequest further comprises a set of customer information.
 5. The methodof claim 4, wherein the price for the proposed credit account iscalculated based on the at least one available account parameter and theset of customer information.
 6. The method of claim 4, wherein the setof customer information comprises an account identifier that specifies apre-existing credit account.
 7. The method of claim 1, wherein the pricefor the proposed credit account is calculated based on the at least oneavailable account parameter.
 8. The method of claim 1, wherein the pricefor the proposed credit account includes a monetary inducement to thecustomer.
 9. The method of claim 1, wherein the first requested accountparameter is selected from at least the following parameters: (i) adesired credit limit; (ii) a desired interest rate; and (iii) a desiredtime period.
 10. The method of claim 4, further comprising retrievingcustomer parameters corresponding to the customer information.
 11. Themethod of claim 4, further comprising retrieving credit historyinformation for a person identified by the customer information, themethod further comprising the step of: calculating the price based uponthe credit history information.
 12. A data processing apparatus fornegotiating terms of a credit account with a customer, wherein thecustomer requests a desired credit account having at least a firstcustomer-selected account parameter, comprising: a memory storing aprogram; a processor in communication with the memory; wherein theprocessor is directed by the program to: compare the at least firstcustomer-selected account parameter with a set of available parametersto calculate a price for a proposed credit account responsive to thecustomer request; and forward a proposal to the customer, the proposalincluding the price for the proposed credit account, wherein the priceis based in part upon the at least first customer-selected parameter.13. An apparatus for negotiating terms of a credit account with acustomer, wherein the customer requests a desired credit account,comprising: means for receiving a customer message containinginformation regarding the desired credit account including at least afirst customer-selected account parameter; means for comparing the atleast first customer-selected account parameter with a set of availableparameters to calculate a price for a proposed credit account having theat least first customer-selected account parameter; and means forforwarding a proposal to the customer, the proposal including a pricefor the proposed credit account; wherein the price is based in part uponthe at least first customer-selected parameter.
 14. A computer-readablemedium storing computer-readable instructions that direct amicroprocessor to: receive a request for a desired credit account from acustomer, the request including at least a first requested accountparameter; compare the at least first requested account parameter with aset of available parameters to calculate a price for a proposed creditaccount having the at least first requested account parameter; andsubmit a proposal to the customer, the proposal including the price forthe proposed credit account.